Performance Evaluation of the Commercial Bank of Ethiopia: pre and post Liberalization

Abstract

Financial sector reform is so important to ensure well-organized and stable financial system to increase the contribution of the banking system towards economic development. An exemplary reform measures undertaken by the Ethiopian government start the year 1992 was “liberalizing” the financial sector. Thus, this study was conducted under the title “performance Evaluation of Commercial Bank of Ethiopia: pre and post Liberalization”. The rational of this study is let the CBE and NBE know the performance of the bank in the pre and post liberalization and hence, to comment and recommend them on what they have to do, for the banks’ prosperity. The main objective of the study is to evaluate the financial performance of the Commercial Bank of Ethiopia in the pre and post liberalization. The researcher employed before and after study design using case study approach to evaluate how the bank has been financially performing in the pre and post liberalization. Both primary and secondary data were used in the study. Primary data gathered through structurally designed questionnaire from the selected employees’ and management who are working in seven different operations of the bank and secondary data from the annual reports for CBE for the period covering the year 1976 to 2009 were used in the study. The researcher employed financial statement analysis and test the hypothesis using t-test statistical tools. The major findings of the study indicate that performance of the bank after the liberalization is better than before liberalization. However, further reform measures in the deposit market, in establishing strong legal ground for providing technology banking services, let the bank to do business with financial institutions of their own choice, improving the capacity and independence of the regulatory/supervisory organ and full liberalization of the foreign market needs to be areas that need further liberalization or reform measures. Finally, the study suggested that the bank should use its maximum effort to further improve its performance and reform measures should be initiated on lifting the minimum interest rate for deposit to be determined on market basis, modify the commercial code to incorporate new article to enhance IT, fully liberalizing the foreign market, and encouraging the bank to do business with a financial institutions of their own choice.